WASHINGTON — The Greek debt crisis sent a shudder through global financial markets and served as a dramatic reminder of how vulnerable the world economy remains to the threat of a fast-spreading financial panic.
To many, market developments this week served as a reminder of the panic that spread worldwide after Lehman Bros. collapsed with disastrous consequences in September 2008.
"If people get scared that Greece could default, they are going to be scared that Portugal will default and then other countries. Once people panic, they panic about everything," said David Wyss, chief economist at Standard and Poor's in New York. "We saw that in the wake of the Lehman Brothers failure."
The Dow Jones industrial average finished up 122 points Thursday, following overseas gains in Britain, Germany and France.
Those market gains, which followed losses earlier in the week, came as European and German officials sought to assure investors that they were working quickly to approve a bailout for Greece. European Union monetary affairs commissioner Olli Rehn said he was confident that talks on a bailout package of support from European countries and the International Monetary Fund would be wrapped up in a few days.
Underscoring the need for quick solutions, the White House released a statement late Wednesday that President Obama and German Chancellor Angela Merkel had discussed the "importance of resolute action by Greece and timely support from the IMF and Europe to address Greece's economic difficulties."
In Asia, while there are not yet significant concerns about the creditworthiness of the region's governments, big economies like China and Japan still have much at stake. Europe is an important export market for Asia, and China and Japan are among the biggest investors in the debt issued by the United States and European countries, with holdings worth billions of dollars.
Some lenders in the region, meanwhile, are already fretting that Europe's problems will chill the financial system, making it harder for banks to borrow the short and long-term money that helps fund their own lending to businesses and consumers.
There are also concerns the turmoil in Europe could convince China to delay any appreciation of its currency — widely viewed as undervalued — aggravating tensions with the U.S. and other trading partners. A key meeting on this issue is scheduled for May 24-25 when Treasury Secretary Timothy Geithner and Secretary of State Hillary Rodham Clinton will meet with their counterparts for talks in Beijing.
Economists noted that the debt problems hitting Greece and other European countries often occur after a financial crisis. That is because governments borrow heavily to prop up their banking systems, which sends their own debt burdens soaring.
In the current crisis, the United States has seen its publicly held debt jump from 36 percent of the total economy in 2007 to 64 percent this year. That's the highest level since 1951, when the country was still paying off the debt run up to fight World War II.
Debt levels of all developing countries are rising to levels not seen over the past 60 years, the IMF said in an economic survey released last week.
"The Greek problem highlights a broader problem across the globe," said Mark Zandi, chief economist at Moody's Analytics. "Governments used their resources to end the financial panic... but now they have to figure out how to pay for it."
While the United States and Japan, the world's two biggest economies, also have heavy debt loads, they enjoy advantages in financing that debt that Greece does not have.
More than 90 percent of Japan's debt is funded domestically, putting the country at low risk for capital flight and servicing that debt remains manageable because of low interest rates.
But Fitch Ratings did warn last week that Japan's credit rating could worsen if Tokyo does not rein in snowballing debt, which reached 201 percent of gross domestic product in 2009. Deflation, slow growth and dwindling household savings could eventually undermine Japan's ability to fund itself.
The rest of Asia is on sounder financial footing, especially considering its rapid growth. The region underwent a "profound deleveraging" in the 1990s following its own financial crisis, mandated by the IMF's strict bailout conditions, said Glen Maguire, chief Asia economist at Societe Generale.
China's government reports its debt at about 20 percent of GDP. But Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates, says the figure is far higher than official numbers suggest.
Add local government debt and nonperforming loans in the government-owned banks, and the level tops 50 percent of GDP, he said.
"The number is higher than the government acknowledges, and that is well known, but it is still not a very alarming number," Orlik said.